Lois Melbourne didn't hire her new salesperson-her
salespeople did. When TimeVision Inc. of Irving, Texas, needed to
add to its 20-person sales staff, the 33-year-old CEO decided to
assign her two existing salespeople to the job. They created the
job specification, posted it on an online job bank, reviewed
resumes, held interviews and made the final recommendation. A
manager didn't get involved until the salary negotiation. In
fact, Melbourne never even laid eyes on the new hire until her
first day of work.

Melbourne's hiring hand-off is a perfect example of
bottom-up management. This highly empowered style of running a
business gives the responsibility for making significant decisions
to people who would otherwise wield little influence in a business.
Employees are better motivated and their skills are more fully
utilized at bottom-up firms, experts say. Companies such as General
Electric and Southwest Airlines are among well-known corporations
that have championed the bottom-up style.

Melbourne was a veteran of large corporations before founding
Time-Vision, a business that offers Web-based organizational
charting, in 1994. Today, she's a firm believer that bottom-up
is the way to go. "It's still a little early, but I have
complete faith," she says of her sales team's recent
hiring decision. "And, having met the woman, I think they did
a fantastic job."

Behind The Scenes

Back in the 1950s, quality prophet W. Edwards Deming advocated
giving lower-level employees more decision-making authority. That
approach has proved effective at some Japanese companies, such as
Toyota, where fac-tory workers have the power to suspend
auto-assembly lines. Bottom-up management isn't yet mainstream,
however.

Jeffrey Pfeffer, a professor of organizational behavior at the
graduate school of bus-iness at California's Stanford
University, agrees, "It's not pop-ular, and everybody
thinks you lose control when you do this. In some sense, you do.
But what's the point of having smart, well-trained people if
you're not going to let them do something with it?"

Bottom-up management is especially effective for matters
directly affecting employees, such as benefits. Melbourne assigned
an employee team to investigate switching from an employee
retirement savings plan that relied on Individual Retirement
Accounts to a 401(k) plan. After the team recommended the more
complex and costly plan, the company made the change. "They
decided we'd be more competitive in the marketplace if we had
that benefit," explains Melbourne. She also turns over
scheduling to employees. "I don't want to be deciding who
gets which days off," she says. "They schedule
themselves."

Still, some companies go even further, passing along operational
decision-making. Whole Foods Inc., the nation's largest natural
grocer, lets employee teams decide on everything from marketing and
merchandising to when to clean floors. Turning hiring over to
employees is rare even in bottom-up companies; only a few go as far
as Whole Foods, where employees can vote out team leaders they deem
ineffective.

More companies should involve employees in the hiring process,
says Michael Useem, a management professor at the University of
Pennsylvania's Wharton School in Philadelphia. "It has to
be done responsibly," he says, "but if the people who are
going to be reporting to the new hire have input, you have more
information on the person's capacity than if the CEO were the
only one to interview the candidate."

Making It Work

Effective bottom-up management starts by employing people who
can handle management responsibilities, insists Melbourne.
"That's the trick," she says. "Hire intelligent
people if you're going to let them make decisions."

Information-sharing is another key piece of the bottom-up
puzzle. Bottom-up companies let everyone in on financial details
such as sales, profit margins and even salaries. This kind of
openness may be uncomfortable, but it's unavoidable, Pfeffer
says. "If you're going to have people make
decisions," he explains, "they're going to have to
have [that] information."

Bottom-up advocates say information without understanding is
useless, so employees should be trained to comprehend the financial
statements they see. They should also be instructed in the use of
decision-making techniques, Melbourne adds. Training is a central
part of bottom-up empowerment.

None of this will help unless employees are truly free to make
decisions. "To me, bottom-up management means the people
actually make their own decisions," says Pfeffer. "They
may ask the boss for advice, but at the end of the day it's
their responsibility to decide what to do, and get it
done."

Finally, decision-making employees must be held accountable,
with compensation and advancement tied to the quality of their
decisions. "Incentive pay is the high-octane fuel in the
system," says Useem. "It helps people keep score."
Keeping track of that score, he adds, requires a business to have
adequate appraisal and tracking tools for evaluating whether
employee decisions are producing the desired results.

When To Use It

Bottom-up management isn't for every occasion. When
confidentiality is important, such as with merger discussions or
sensitive personnel matters, it may be inappropriate or unwise to
share information with all employees, says Pfeffer. And any time
decisions are made by groups-such as the employee teams utilized by
most bottom-up companies-it may take longer to make the decision,
but it will most certainly take less time and be easier to
implement. So when speed is the priority, bottom-up may not be the
way to go.

It can also be risky. Employees who are untrained, ill-informed,
improperly compensated or inadequately managed can make bad-and
costly-decisions. Useem points out the extreme case of Nicholas
Leason, whose uncontrolled securities trading rang up billions of
dollars in losses, causing the collapse of his employer, the
200-year-old Baring Group.

This management style carries costs. You'll have to lay out
money to train employees and devote time to educate them about the
company's financial performance and goals. "You have to
spend more time in the early parts of projects and in the early
parts of employees' careers teaching [about] decisions and the
boundaries and [expectations] of the company," says
Melbourne.

As with many management modifications, the biggest investment
will be in a new mindset. "Most of us work hard all our lives
to be on top, and what this involves is giving up power,"
Pfeffer says. "That's very tough. It's easy to talk
about; it's hard to do." Melbourne agrees that handing
over control wasn't easy, especially when her company grew from
seven employees to 20 in a year. "You have to be able to let
go of it," she says. "You have to let people make the
decisions that you formerly made yourself and that you want to make
yourself."

Although her employees already enjoy an unusual degree of
autonomy, Melbourne considers bottom-up management at TimeVision a
work in progress. Her role as entrepreneur continues to evolve from
a relatively traditional leader to a new style of business owner
who guides rather than controls.

"I run the company," says Melbourne, "but I'm
trying to place myself more as a consultant and catalyst. I like to
come up with the ideas and see where the employees run with
them."

Mark Henricks is an Austin, Texas, writer who specializes in
business topics and has written for Entrepreneur for 10
years.

Next Step

The Human Equation: Building Profits by Putting People
First (Harvard Business School Press) by Jeffrey Pfeffer
describes ways to make the most of your employees' competence.
To order, call (800) 668-6780.